“Failing to engage with it seriously risks repeating past mistakes.” | Image credit: Hameem Sarwar /CCN
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Key Takeaways
The U.K. continues to categorize Bitcoin as a speculative crypto asset rather than a payment infrastructure.
Other jurisdictions, including the E.U. and the U.S., distinguish Bitcoin from issuer-driven tokens.
Treating Bitcoin as infrastructure could support the growth of fintech and innovation in payments.
Regulatory ambiguity risks driving talent and investment away from the UK.
The UK often presents itself as a global leader in finance and fintech, yet its regulatory treatment of Bitcoin sits uneasily with that ambition.
By continuing to group Bitcoin (BTC) with speculative “crypto” assets, policymakers apply broad, risk-averse rules to a technology that is increasingly used elsewhere as financial infrastructure.
Rather than strengthening consumer outcomes, this approach risks slowing innovation, deterring investment, and encouraging firms to develop outside the U.K.
This matters beyond the digital asset industry. Financial and insurance services account for around 8% of U.K. GDP, according to data from the U.K. Office for National Statistics, and play a central role in the country’s global economic position.
When regulation limits the practical use of new payment rails and financial infrastructure, it weakens one of the U.K.’s most important sectors.
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Why UK Regulators Still Fail To Distinguish Bitcoin From Other Crypto Assets
A core problem in U.K. policy discussions is the persistent failure to distinguish between Bitcoin and the broader category often labelled “crypto.”
Bitcoin is a decentralized, open-source network with no issuer, no governing company, and no promise of returns.
Many crypto assets, by contrast, are issued by identifiable entities, marketed as investments, or structured around governance and expectation of profit.
Other jurisdictions have begun to reflect this distinction in their laws and regulations.
In the United States, Bitcoin exchange-traded products (ETPs) have been approved, and regulatory agencies have differentiated between decentralized commodities and issuer-driven tokens.
In the European Union, the Markets in Crypto-Assets Regulation (MiCA) explicitly distinguishes betweenasset-referenced tokens, e-money tokens, and decentralized assets, such as Bitcoin, thereby creating clearer obligations and fewer ambiguities for businesses and users.
The U.K., by comparison, continues to rely on frameworks designed for high-risk financial promotions and speculative investments.
Rules built for high-risk financial products do not work well when applied to payment software that can operate without users taking on market risk.
Bitcoin as Payment Infrastructure Rather Than a Financial Product
Much of today’s Bitcoin usage does not resemble investment activity. Through technologies such as the Lightning Network, Bitcoin can function as a low-cost, instant settlement layer while remaining invisible to end users.
Consumers can pay in local currency, merchants can receive local currency, and Bitcoin operates in the background as a neutral rail for moving value.
Major merchants and payment platforms worldwide are already integrating Lightning Network payments, including in-store point-of-sale systems and online checkouts, demonstrating that Bitcoin can function at scale as a practical payment infrastructure.
For example, Square has begun rolling out Lightning-enabled Bitcoin acceptance on its widely used POS terminals. At the same time, payment platforms such as Strike, Cash App, and BitPay already support Lightning-based transactions for consumers and merchants.
Why Bitcoin Payments Do Not Fit Investment-Focused Rules
This model challenges traditional regulatory assumptions. When Bitcoin is used purely as a payment mechanism, rather than as an asset to hold, it does not behave like a security or a speculative instrument.
Treating it as such imposes complex regulatory hurdles, such as investor classification tests and disclosure rules, which make everyday use impractical.
In the U.K., these requirements prevent entire categories of payment-based use cases from operating, even where transaction values are small and consumer exposure is minimal.
How UK Investment Rules Restrict Bitcoin Payment Use Cases
Applications that use Bitcoin solely as a settlement mechanism for small rewards, loyalty payments, or micro-transactions can trigger the same investor classification tests, risk warnings, and hurdles typically applied to speculative investment products.
Ben Cousens says that “the U.K. faces a strategic decision.” | Image source: Ben Cousens
In practice, this effectively rules out everyday, low-value payment use cases.
By contrast, similar services can operate across the E.U. under MiCA and in the United States under existing frameworks, as long as they meet familiar obligations regarding licensing, anti-money laundering (AML) controls, consumer disclosures, and the safeguarding of funds.
In these jurisdictions, regulators focus on how the technology is used in practice, as a payment mechanism rather than an investment, allowing payment innovation to develop while maintaining appropriate consumer safeguards.
Why Proportional Licensing Is Central to Bitcoin Payment Regulation
Effective regulation is about striking a balance between risk and opportunity. Financial history shows that overly cautious systems do not eliminate risk; they simply relocate it, often offshore.
Businesses that cannot operate domestically will still serve U.K. consumers from abroad, beyond the direct reach of U.K. regulators.
Proportional licensing frameworks understand that using Bitcoin for payments carries far less risk than treating it as a speculative investment, and adjust regulatory requirements accordingly.
In payments, regulators already scale requirements based on transaction size, custody risk, and consumer exposure.
Applying the same logic to Bitcoin-based payment infrastructure would allow innovation to proceed while preserving safeguards.
The EU’s approach illustrates this principle. MiCA provides a single licensing framework that enables firms to operate across member states once basic standards are met.
This clarity has accelerated investment and product development, even among companies that are not ideologically aligned with digital assets but recognize the commercial value of efficient settlement systems.
How Regulatory Uncertainty Is Pushing Bitcoin Innovation Out of the UK
Regulatory uncertainty can affect economic outcomes. Early-stage founders face challenges securing investment when compliance requirements are unclear or subject to sudden reinterpretation.
Investors tend to favor jurisdictions where rules are clearly defined and predictable. Over time, this can result in talent and capital gravitating toward environments that encourage responsible innovation rather than hinder it.
The U.K. has experienced this dynamic before. British researchers played a pivotal role in laying the foundations of modern cryptography and the internet itself, yet the commercial value was often captured elsewhere.
Bitcoin and its surrounding infrastructure represent another opportunity to convert technical leadership into economic relevance. Failing to engage with it seriously risks repeating past mistakes.
Responding to Claims That Stricter Crypto Rules Are Needed for Consumer Protection
Critics often argue that stricter regulation is necessary to protect consumers from volatility, fraud, and other forms of abuse.
The UK tightening the net on crypto tax evasion was only a matter of time. More regulation, more reporting — transparency is becoming the new normal for crypto. Compliant players will benefit long term, while bad actors get squeezed out. 💔💔✌️✌️
These concerns are legitimate. However, they are best addressed through targeted rules that reflect actual risk, not by applying broad regulations that treat fundamentally different technologies as the same.
Consumer protection does not require treating all digital value transfer systems as speculative investments. Nor does innovation require the absence of oversight.
What it does require is the application of careful assessment and regulatory diligence, considering the real-world operation of technologies rather than relying on superficial or sensational interpretations.
What the UK’s Bitcoin Policy Choice Means for Its Economic Future
The U.K. faces a strategic decision. It can continue to approach Bitcoin primarily as a problem to be contained, or it can recognize it as a piece of global financial infrastructure that, if regulated sensibly, could strengthen the country’s payments ecosystem and fintech sector.
Simplifying frameworks, clarifying definitions, and aligning regulations with real-world usage would not weaken standards.
By drawing clearer distinctions between Bitcoin and other digital assets, introducing proportionate rules for low-risk payment activity, and aligning policy with real-world use, the U.K. could unlock innovation while maintaining strong consumer protection.
These changes could realistically take effect in 2026.
Disclaimer:
The views, thoughts, and opinions expressed in the article belong solely to the author, and not necessarily to CCN, its management, employees, or affiliates. This content is for informational purposes only and should not be considered professional advice.
About the Author
Ben Cousens
Ben Cousens is Chief Strategy Officer at ZBD, one of the world’s largest Bitcoin Lightning payments companies, where he leads global payment innovation and strategy. He is also the CEO & Founder of Antidote, London’s first Bitcoin-focused accelerator, which supports early-stage founders with mentorship, seed funding, office space, and access to a network of investors and industry experts.
